July 18, 2017 / 4:00 PM / 3 years ago

Brazil mulls easing local content rules in older oil contracts

RIO DE JANEIRO (Reuters) - Brazil’s oil regulator may allow companies to apply more flexible local content rules to pre-existing exploration and production contracts, the agency chief said on Tuesday, in a bid to revive projects put on hold due to costly requirements.

Decio Oddone, director of oil regulator ANP, said the agency would open a 30-day comment period on the proposal, followed by a hearing and publication of the rule in September. Contracts signed since 2005 but before more flexible rules went into effect this year would be eligible. Content rules dictate what percent of a project’s workers and inputs have to be local in origin.

“We believe this new option will unlock investments, attracting capital and generating new hires, jobs and revenue,” Oddone said at a press conference in Rio de Janeiro.

Many crude projects have been put on ice in Brazil, including exploration of the Libra oilfield in the subsalt region of the Santos basin, thought to be Brazil’s largest oil reserve, due in part to steep costs stemming from tough local content rules.

Oddone said the ANP had received more than 230 requests for exemptions from the rules by companies with pre-existing contracts, including one by state-controlled oil firm Petrobras, which has partnered with Total, Shell and others to develop Libra.

In February, ANP sharply reduced local content requirements in future oil exploration and production contracts in a boon to oil companies but a major setback for local suppliers. If approved as proposed, the plan announced on Tuesday would extend the more flexible rules to older contracts.

On Tuesday, machine and equipment makers association ABIMAQ said it opposed the proposal, describing local content requirements as “low” and the decision as unilateral.

The oil companies “have not only failed to comply with local content rules in the past ... they are now trying to get rid of those obligations,” said ABIMAQ Vice President Cesar Prata.

The new resolution would also hammer out the rules for waiver requests and transfers of surplus local content which have been pending for more than a decade.

The move is part of a wave of market-friendly measures imposed on the oil sector since conservative President Michel Temer took office last year after leftist Dilma Rousseff was ousted over breaking budget rules.

Oddone also raised the possibility of reducing royalties for companies that decide to renew concessions in the future. He said an auction slated for Sept. 27 would allow firms to use oil and gas reserves as collateral for bank loans.

Reporting by Marta Nogueira and Alexandra Alper; Editing by Leslie Adler and Cynthia Osterman

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